IFRS 16 rebates (bonuses)

Question

We have an arrangement with a supplier that pays a premium to us if we lease out their equipment. It looks like a rebate which decreases the cost of the equipment, which itself is subsequently derecognised and turned into NIL. The final rebate is determined upon meeting certain commercial conditions (selling a predetermined volume of machinery from the same supplier). In other words, this rebate may change after commencement date. There are 2 questions with regard to this: 1) is it within the scope of IAS 16 or IFRS 16, since we have to determine the initial value of a fixed asset that is leased out? 2) how should one account for this rebate - a) recognise it as a one off charge in PL after receiving source documents stating the exact amount of rebate b) try to estimate the amount of rebate based on the historical data...and then add this estimation, thus reducing the initial investment in the CF calculation for the lease?

Answer 1

The accounting treatment of the premium received from the supplier would depend on whether the arrangement is considered to be part of the lease or not. If the premium is considered to be part of the lease, it would be within the scope of IFRS 16, Leases. If the premium is not considered to be part of the lease, it would be accounted for under IAS 16, Property, Plant and Equipment.

For the accounting treatment of the rebate, it would depend on whether the amount of the rebate is known or uncertain at the time of the lease agreement. If the amount of the rebate is known and can be reliably estimated at the time of the lease agreement, it should be accounted for as a reduction of the lease liability and the right-of-use asset as part of the initial measurement of the lease. If the amount of the rebate is uncertain at the time of the lease agreement, it should be accounted for as a variable lease payment, and should be recognized as a liability or an asset when the amount becomes known or can be reliably estimated.

In your case, since the rebate may change after the commencement date, it would be uncertain and should be accounted for as a variable lease payment. The best approach would be to recognize the rebate as a liability or an asset when the amount becomes known or can be reliably estimated. It's important to consider that the estimation should be based on the information available at the time of the lease agreement and should be regularly updated as new information becomes available.

It's important to note that it's important to disclose the nature, amount and expected timing of the rebate in the notes to the financial statements.